Which of the following are forms of depreciation?

Depreciation refers to the reduction in the value of an asset over time, typically due to wear and tear, obsolescence, or changes in market conditions. The correct answer highlights three distinct forms of depreciation.

Physical depreciation accounts for the loss in an asset's value resulting from physical wear and tear, such as aging or damage. This type of depreciation is measurable and often visible through the condition of the property.

Economic depreciation relates to the loss of value due to external factors affecting the market, such as changes in supply and demand, shifts in the neighborhood or community, or economic downturns. This form of depreciation shows how market dynamics can impact the valuation of an asset regardless of its condition.

Functional depreciation arises from the loss of value due to outdated or inefficient features within a property compared to newer alternatives. Improvements in design or technology can render certain aspects of a property less desirable, leading to a reduction in market value.

Together, these three forms provide a comprehensive understanding of how various factors can contribute to an asset's overall depreciation, which is crucial for appraisers when determining the fair market value of a property. Each type addresses different influences on an asset's value, which is why they are essential for appraisers to consider in their analyses.